The myth that flat taxes are simple and would raise tax revenue is just that: a myth.

It’s also a myth that a great deal of the UK tax code could be eliminated. That is not true unless we wanted to scrap whole taxes and lose the money they raise.

It is that last point that provides the real clue to what flat taxes are all about. It is not chance that they are always promoted by people who also argue for small government and massive cuts in public spending. That is what they are intended to deliver, and I have to agree, they would.

But there’s even a sting in the tail in that.

Currently the top 10% of all income tax payers in the UK pay about 59% of all income tax. They also pay tax at higher rates than anyone else. That is why they pay so more, but that’s also because they earn more than most, of course.

Under a flat tax system they would enjoy substantial – maybe massive – tax cuts.

Those on low incomes would almost certainly pay more because around the world flat tax systems are associated with high National Insurance contributions – that hit the lowest paid hardest.

So flat taxes are really about cutting taxes for the best off, cutting services (like the NHS) massively and requiring payment for their use instead, and increasing tax, overall, for the least well off. That’s the reality.

And as for simplification? That won’t happen, first because business needs complex tax systems to let it do the complex trades it undertakes, and second, because most of the complexity is about defining just what is taxable. That’s the hard bit. Multiplying by two percentage rates rather than one is, in comparison, no problem at all.

So flat tax would simplify almost nothing, but leave you paying to see the doctor or educate you children. That’s what the flat taxers fail to mention.

10 Responses to “Flat taxes aren’t simple and nor are they fair. They’re actually all about slashing the role of government”

Many who support this idea continuously claim that more money will ‘circulate’ the mythical nature of which has has already been proved. The wealthy don’t circulate their money, they sit on it. UKIP has wheeled out the flat tax idea in its manifesto using the Laffler curve as ‘proof’ of increased collectability. Why they believe that lower taxes for the well of increases general wealth is beyond me unless the 30 Million using food banks and those living in tent cities are evidence in America!

I confess, from a position of ignorance, I’ve been attracted to the idea of flat taxes; partly because of some notion of fairness. It’s an arbitrary notion that proportion of income paid in tax should increase with income rather than stay the same (excepting an allowance at the bottom). I also wondered whether tax rates are fairly independent of what rich people pay. Premiership footballers, for example. How many of them pay 45%, 50%, whatever? None. They are all involved in various schemes. Many have gone bankrupt as a result. How much they pay, other people might know – I’m interested, but would it be less if a flat tax were in place?

This is what the right are banking – an intuitive appeal to the ignorant, as you yourself confess you are. Flat taxes are the economic equivalent of alchemists claiming to turn base metal into gold – we all pay less tax, but tax revenue goes up.

But it is not fair to assume that everyone has the same utility curve.

Take the man who earns £20k income, but decides though personal preferences to live a minimalist consumptive life, is happy to do so, and can save 50% of his income. An extra 10% of income to him is just more savings. He has no desire to save more money per se as he has no desires to consume more. His utility level does not increase by a further raised income level as his needs are being met.

Contrast him with the women on £100k who lives a high life, has her nails, hair & tan done once per week, has maxed out credit cards, and is so consumptive to the extent she can only save 1% of her income per year.

Her utility curve implies she should have a lower level of tax (based on the concept put forward as underlying progressive tax theory) than our example man because she does value each subsequent pound as means to achieving a higher level of personal utility.

Everyone has a different capacity to enjoy a similar level of income.

People with higher incomes often place a higher value on what their next pound can buy compared to the person with the lower level of income.

In contrast, a retiree, would place a lower level of utility on the same level of income.

The actual basis of progressive taxation should not be dressed up in the economic nonsense of utility curves, but rather as an ethical matter in which it is perceived that income levels between people should be equalised via forced redistribution.

The root of progressive taxation is egalitarian. Nothing more or less.

It is the ethics of legalised theft – that a person does not possess the right to retain the capital earned by their own hand. Progressive tax is the ethics of slavery; that a person’s income is first and foremost belonging to the State.

I suspect the person with the minimal consumptive life would not actually save more, but would give the money to those who needed it, probably redistributing income to a poorer country as well. Personally I think that is a slightly better result than another fake tan and nails…

There is no ‘definitive’ definition of what the expression ‘flat tax’ means. You present an idiotic potential implementation out of your own imagination, and then condem it for its idiocy. You are merely condeming the paucity of your own imagination.

There are three basic tax bands:

– Those in the ‘no/low-income band’ pay ‘tax’ at approximately 80% (i.e. dominated by withdrawal of means-tested benefits, plus income tax and national insurance contributions).

– Those in the ‘mid-income band’ (i.e. those paying income tax and national insurance contributions at the basic rate) pay ‘tax’ at approximately 30% (based on income tax and national insurance contributions).

– Those in the ‘high income band’ pay ‘tax’ at approximately 40% (based on income tax).

If a ‘flat tax regime’ were to be engineered as follows:

– A flat tax rate was set at (say) 40% (i.e. the current high income rate) on all income.

– A ‘non-means-tested basic tax credit’ was set at a level to leave those with high income worse off.

– All other ‘income replacement benefits and tax credits’ (i.e. income support, job seekers allowance, and employment support allowance and working tax credit) were all reduced by the value of the above ‘non-means-tested basic tax credit’.

Then, when compared to that current position:

– Tax revenue, and welfare spending would be unaffected.

– Those in the low-income band would be better off.

– Those in the mid-income band would be better/worse off depending on how far up that mid-income band they were.

– Those in the high-income band would be worse off.

Whose ‘paper tiger’ is more credible? Do the math. Let’s have a more nuanced debate here

Do you seriously expect anyone to believe that the right wingers who propose flat taxes intend to make the wealthy worse off and the poor better off? Really? Are you having a laugh? I don’t know if what you suggest would work, but I do know that if it does what you say it does, it won’t be on the table if flat tax is actually introduced. I am going to be charitable and assume that you are extraordinarily naive about how the world really works.